Global Economics

German Military Frustrated with EADS


Armed forces leaders are angry at the delays and technical glitches typical from the Franco-German defense contractor, but politicians still defend EADS

Angela Merkel was in a resolute mood. German defense contractors liked to talk about "patriotism," the Chancellor declared irritably when Defense Minister Franz Josef Jung and top military officials came to her complaining about delays in the supply of combat jets, helicopters and other equipment. "So we can't have the army spending years waiting for its equipment."

"It's time more pressure was put on industry," she declared, in an unmistakable instruction to Jung to get tough with defense suppliers.

But Merkel doesn't seem to be sticking to her own line. More than a year after that meeting in her office in Berlin, all it took was a telephone call and a meeting with French President Nicolas Sarkozy for the Chancellor to cave. The two leaders were discussing the military transport aircraft A400M built by the Airbus parent company EADS (EAD.PA), a Franco-German defense giant that enjoys a quasi-monopoly in Europe's aerospace industry. The A400M has been subject to so many delays and glitches that Europe's defense ministers threatened in March to cancel their deal to buy 180 planes at a price of €110 million ($158 million) each.

But Angela Merkel undermined her own people. She and Sarkozy shelved the cancellation threat in June before the company had even acceded to demands from European ministers that it provide "transparency" on technical problems, costs and on the reorganisation of its management.

So the ministers had no option but to postpone the deadline for negotiations until the end of the year. No defense official in Berlin or Paris still believes that the countries will end up cancelling the contract and forcing EADS to pay back €6 billion.

The monopolist now has a firm grip on its customers. "We need a transport aircraft," Merkel said in Paris. The Transall aircraft that are due to be replaced by the A400M are 40 years old and rickety. The German army has ordered 60 of the new aircraft for more than €8 billion including equipment.

History of Shortcomings

When it comes to EADS, the German army always fights a losing battle. No supplier is as frowned on among German military top brass as EADS. Many of the products the company offers arrive later, perform less well and turn out more expensive than expected. Be it "Eurofighters," combat helicopters, transport helicopters, electronic equipment for frigates or infantry equipment—EADS almost always gets a chunk of government defense contracts but it's rare that its products work the way they should.

Nevertheless, German budget committees under conservative and Social Democrat-ruled governments have kept on approving fresh cash. Defense managers and government officials tend to warn that that cancelling an order would jeopardize Germany's reputation as a reliable business partner. Or the lobbyists make dire warnings about the loss of thousands of jobs.

The chairman of parliament's budget committee, Otto Fricke of the opposition pro-business Free Democrats, wants parliament to be involved in any further decisions regarding the A400M. "We don't want to be degraded to a rubber-stamping club like with previous defense contracts," he said. EADS, he warned Jung, "mustn't have carte blanche."

That realization comes pretty late given that when the FDP was still in government, it also tended to approve questionable projects. Loyalty to the coalition took precedence over business sense, for example in the case of the controversial "Eurofighter" jet. In the 1980s, Franz Josef Strauss, then leader of the Bavarian conservative Christian Social Union party, and Defense Minister Manfred Wörner both promoted the project. The plan was to order at least 200 "Jäger 90" jets, and they were to be ready for use from 1997. One fighter was to cost around 83 million German marks including spare parts.

Part 2: Surging Price, Technical Problems

By 1992 the price had jumped to 134 million marks. Defense Minister Volker Rühe demanded a "reversal" but all he got was a change in the name to "Eurofighter." Technical problems piled up. The computer software didn't work properly, or there were problems with the tail fin or the wings.

The German air force didn't get the first jets until July 2006. It now has 38 Eurofighters. But 14 of them have been sent back for repairs. Some of them still suffer instrument failure during flights. Of the six single-seat aircraft at the Neuburg air base only four are fit for service on average. That's just enough to provide day and night cover for Germany's airspace.

The defense ministry recently admitted to budget committee members that the approved sum of €14.7 billion would only be enough to pay for 143 Eurofighters. Parliament would have to approve an additional €3 billion if the air force was to get the planned 180 aircraft, ministry officials announced meekly.

The situation isn't much better when it comes to helicopters. The EADS subsidiary Eurocopter prides itself on being the global market leader for civilian helicopters. But it neglects its regular customer, the German army, which at one time aided the company's ascent by acquiring hundreds of its helicopters.

Back in 1983 Chancellor Helmut Kohl and French President Francois Mitterrand had agreed to develop the "Tiger" combat helicopter. It was supposed to be ready for service in 1992. Military officials demanded many alterations and the partners at time also lacked money. But the project was mostly dogged by technical problems. The defense ministry kept on agreeing to postponements in the delivery dates.

Chafed Cables, Inaccurate Guns

The German army ordered 80 "Tigers." The prototypes delighted crowds at air shows from 1991 onwards. But the German army hasn't received a single Tiger helicopter that is capable of reliably hitting targets with its rockets and cannon. The 10 "Tigers" it currently has are only suitable to provide basic instruction for pilots. More have been built but they haven't been accepted—mechanics recently complained about chafed cables.

The NH90 transport helicopter is also regarded as a flop by the military. The plans to develop the aircraft go back to 1992. The Bundeswehr had ordered 80 of the helicopters for a total of €1.7 billion. However, the first sample aircraft only arrived at the end of 2006. Admittedly, the army is now in possession of eight of them. However, they are only 26 percent fit for service. That means that on average only two of the helicopters are ready to start at any given time.

And the helicopters cannot be deployed in the way the military had originally planned. The NH90 is supposed to accommodate 16 fully-armed soldiers. It's not yet clear if this can be achieved. Recently a somewhat heavy passenger was told that the maximum weight per seat was 100 kilograms. However, even a slim soldier with a combat pack would easily make that weight—after all, a bullet-proof vest alone weighs around 15 kilograms.

"Never again" the top brass swear, will EADS be allowed to get away with something like this. That was why the rules were so strict when it came to the contract for the A400M. The company would have to accept wide-ranging rights of cancellation and compensation if the aircraft was not delivered on time or with any deficiencies.

It is exactly these clauses which EADS CEO Louis Gallois ("We are not starving for contracts") and the German Airbus boss Thomas Enders want to see revised. In order to keep the losses to a minimum, customers should pay more, even though it is still not clear when exactly the A400M will take to the skies.

The relevant ministries have so far rejected these demands. Jung's state secretary Christian Schmidt, a member of the CSU, is already regretting that another offer was rejected in the 1990s. "Maybe we should have bought the Antonov after all," he said.

At the time Russia and Ukraine had offered to build its An-70 military transporters in cooperation with the Western Europeans. The four-engine aircraft would have met all the German air force's requirements and, at a bargain price of €50 million, was far cheaper than the military Airbus, the defense procurement department in the Defense Ministry said back in 1999.

However, the government at the time—a coalition of Social Democrats and Greens—opted for the A400M, although it was still only on the drawing board, for the sake of its friendship with France and Airbus. The rebuffed Russians and Ukrainians repeated their offer several times but they never made any headway.

And yet their model not only had the advantage of being far cheaper than the military Airbus. It had one other important plus: The An-70 had already been flying—since 1994.

Reporting by Andrea Brandt, Markus Deggerich, Simone Kaiser, Guido Kleinhubbert


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